Govt’s pursuit of FDI has resulted in tax revenue losses, says Masebo

Govt’s pursuit of FDI has resulted in tax revenue losses, says Masebo
By Kabanda Chulu
Sat 14 Nov. 2009, 04:01 CAT

PARLIAMENTARY Committee on Estimates chairperson Sylvia Masebo has observed that the pursuit by the government to attract foreign direct investment (FDI) through generous tax incentives has resulted in significant losses of tax revenue sources.

And Masebo, who is also Chongwe member of parliament, has said the government should have no excuses to collect revenue taxes from gemstone miners since the Ministry of Mines can easily locate all mines through the use of geological maps.

Meanwhile, finance minister Situmbeko Musokotwane has told Parliament that Zambia’s foreign reserves are not kept in the country but in various portfolio investments at the Bank for International Settlement (BIS) in Switzerland.

Moving a motion in parliament for the adoption of the report of her committee on Thursday, Masebo said the committee considered the measures being undertaken to broaden the tax base and the budgetary performance of the Ministry of Local Government and Housing.

Masebo said there was an over concentration on the expenditure side of the budget, as a result the revenue side tended to be neglected.

She said there was urgent need to change this mindset among all concerned so that revenue generation and related programmes received adequate attention.

“This is particularly important in the light of the fact that Zambiaís over reliance on unpredictable donor financing of the budget is increasingly proving unsustainable and the continued high levels of government borrowing are economically untenable,” Masebo said. “Sir, in the quest to create an enabling environment to attract FDI, the government has lost access to significant tax revenue sources through granting of generous tax incentives, concessions, rebates, breaks and holidays, this has further contributed to eroding the tax base even further.”

She suggested that one effective way of broadening the tax base was through the value added tax (VAT).

“Your committee, therefore recommend that a number of items which are currently exempt or zero rated under the VAT regime should be considered for inclusion in the tax base and these include certain food and agriculture products (excluding maize meal and other basic unprocessed foods), packaged tours, banking services, import cargo handling services, stock broking services, insurances services and electronic media advertisements, among others,” Masebo said.

“And considering that Internet shopping is slowly becoming a trading point, the government can also find ways of taxing these services and the activities around it.”

She recommended that the government should broaden the tax base by including the many items that were currently exempt or zero rated under the value added tax (VAT) regime.

“Currently, most gemstone miners operate in an informal manner but this need not continue to be the case as this is a fairly well organised industry which the governmentís revenue can be increased, in this regard, there must be closer collaboration between ZRA and the mines ministry, which is the licensing authority for the sub sector,” Masebo said.

“So the ministry should have an accurate database on the operations as well as production levels and values for tax purposes, in fact specific geological areas are known to the ministry and can easily be located through the use of geological maps. There should, therefore, be no excuse of failure to locate the gemstone miners for purposes of taxation.”

Masebo also urged the government to design policies aimed at imposing taxes on the informal sector in order to equitably distribute the tax burden.

And Chipili member of parliament Davies Mwila asked how much money was kept in reserves and where the reserves were kept.

And Dr Musokotwane responded that as at December 2006, there was US $706.3 million, US $1,080 billion as at December 2007; US $ 1,084.9 billion by December 2008 and US $ 1,146 billion as at June 2009.

Dr Musokotwane explained that foreign reserves had increased due to foreign exchange purchases from the market, purchase of tax revenue earnings from the mines, portfolio investment in government securities, project inflows and disbursement of budget support by cooperating partners.

“Sir, the foreign reserves are kept in various investment portfolios at the Bank for International Settlement in Switzerland,” said Dr Musokotwane.